One thought on blockchain

I have been thinking a lot about blockchain this past month, especially in terms of anti-money laundering. Blockchain could make AML obsolete, in theory. Blockchain is the decentralized database system that allows for recordkeeping of transactions nearly impossible to fake. And because of it, it sort of creates a world that is zero sum. It isn’t completely zero sum, especially in the beginning because no sources of transaction have been recorded, but eventually so many transaction have been recorded that whatever currency is being tracked could be traced to its original source, in this case the first transaction on the database.

Theory is always beautiful and clean. The reality is that this would require the Office of the Comptroller of the Currency and the Federal Reserve Bank to have their own blockchains and run their own transactions. And I don’t see any interest in that happening.

Another thing that must happen in reality is that all US dollar transaction would need to have unique identifiers for every penny of that transaction. Why? Well, the nature of blockchain is that, the smallest common denominator will be the base currency. That means, every penny will be tracked as a unique object.

Also, as a result of the penny becoming the de facto currency and the zero sum-ness of the blockchain, it would only makes sense to have their equivalent physical currency. As long as we have physical currency, and we have digital to physical convertibility at today’s rates – meaning, being able to go to the ATM and withdrawing funds without needing to match the funds to any physical bill – we will not benefit greatly from blockchain’s true potential.

This is all from an AML perspective. There are a whole host of applications I did not address.